Home Cover Story Wema Bank battles declining fortunes with impressive dividends

Wema Bank battles declining fortunes with impressive dividends

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Staff lay-off dampens morale

By OKEY ONYENWEAKU

 With a 3 kobo dividend pay out representing 38.9 per cent ratio of its share price of N0.77 per share, Wema Bank Plc has put smiles on the faces of its shareholders. Though the dividend largesse appears paltry on the surface and is coming after 14 years of dividend drought, the 38.9 per cent ratio is no mean reward when compared with the dividend ratios posted by the likes of G T Bank and Zenith Bank who are considered to be some of the most profitable in the industry. It is also one of the highest dividend ratios in the banking industry today.

The last time Wema Bank Plc paid any dividend was in 2004. And as things stand presently, shareholders appear thrilled that the new trend may signpost better days ahead.

Whether this would be sustained in the years that follow or not, the reality today is that the dividend pay-out is a reflection of a better performance by a bank which has struggled for survival over the years.

This favourable outcome is also coming against the odds situation in the overall economy, and it is one in which Wema Bank, one of Nigeria’s oldest indigenous banks, is moving its numbers unusually up.  For starters, the lender posted a profit before tax of N4.8bn, a 59.4 per cent year-on-year increase from the N3.01bn recorded in the corresponding period in 2017.

Not done, the 74 years old bank also recorded a growth of 47.34 per cent in its profit after tax of N3.33bn from the N2.26bn recorded in 2017.

The total assets of the bank which started rendering banking services even before Nigeria gained Independence also increased from N388.15bn in 2017 to N488.53 in 2018, while its interest and non-interest income increased to N57.63bn and N13.89bn, respectively, from N53.07bn and N12.19bn in 2017.

On the flip side however, the bank’s non-performing loans, though still within the regulatory threshold, increased by 1.46 per cent to 4.98 per cent in 2018 from 3.52 per cent in 2017 as the cost of risk also increased to 1.34 per cent from 0.97 per cent in 2017.

Even as rating agencies like Fitch, Agusto and GCR are re-affirming Wema Bank’s national long-term rating at BBB, it’s Managing Director/Chief Executive Officer, Mr Ademola Adebise, says the bank recommended the dividend payment of three kobo per share in line with the board’s approved dividend policy.

Adebise said despite the challenging macro-environment, the bank delivered modest improvement at the end of the 2018 financial year, adding that the bank continued to improve on its deposit mobilisation while at the same time pruning down its cost of funds.

He stressed that among other offerings, ALAT, the bank’s digital platform, which was launched in May 2017, has improved its retail liabilities and customer base as over 1,000 new customers are on boarded daily on the digital platform.

“The digital bank continued to receive several accolades in 2018, including the World Finance Awards for Most innovative Bank Africa and the Asian Banker Awards for Best Digital Bank Africa.

“Our vision is to get ALAT to become the premier digital platform in Nigeria. This will be driven by our expertise in the digital space and our retail partnerships.”, he said

Poring through the books of the bank, market observers note that it raised the bar in creating risk assets as loans and advances to customers rose 16 per cent while deposits from customers also grew 45 per cent to N369.1 billion.

Industry analysts expect the bank to creatively but cautiously cut down on costs especially personnel and other operating costs. It is also notable that the bank had participated substantially in Treasury bills and bonds investments in the outgoing year, though in a lesser dimension when compared with its level of participation in 2017. At the end of the business year also, the bank equally deployed higher credit lines to the oil and gas sector to the tune of N52.052 billion.

In building a robust retail bank, Wema has expanded its footprint over the past few years, increasing its presence in the North and Eastern regions of the country and aggressively growing its agent banking business to reach the financially excluded and branch-starved communities.

The Bank hopes to continue to build on the success recorded recently and improve the frontiers of its business year-on-year.

A critical assessment of the 2018 performance shows reasonable improvement on the corresponding outcome of the previous year. But how long the bank can sustain a high-flying performance remains a major question?

Analysts believe that in a stiff and volatile macro- economic environment, the market does not expect a strong upside from listed companies. Therefore, firms may not be able to deliver wonderful results in an environment riddled by social challenges and instability.

Wema Bank is not an exception, but the fact that the lender was able to punch above its weight with its end of year score card.

Recently, Nigeria was said to have over taken India as the most poverty -stricken country in the world. This implies that the banking public may continue to shrink given the level of unemployment that will heighten. How will Wema survive this?

Wema Bank had creatively survived a storm and continued operations as a bank when it could not meet the capital base of N25billion.  In 2010, Wema Bank had scaled down to operate only within its core areas of business – South-South, South-West and FCT Abuja-becoming a regional player.

It soon reversed to a national bank status when its capital base hit N43.8 billion and met the regulatory requirements for the National Banking license as stipulated by the Central Bank of Nigeria. This made it the first lender to be granted a National Banking License having previously operated with a Regional License.

Has the national bank licence paid off? Many have asked.

Some analysts believe the National Banking status may have paid off after all. With the recent performance, the bank appears to be stabilising. This is also reflected on its share price which had traded at 50 kobo for a long time before inching to 77 kobo.

“This Approval represents a milestone for the Bank in the delivery of its Project LEAP commitments. Six (6) years ago, we took a decision to refocus the Bank’s operations on its areas of strength and build a sustainable institution. We took advantage of the new licensing regime and applied for a Regional authorization with a pledge to expand in the near future, once the turnaround project was completed. The Bank’s transformation was implemented in three phases; first to stabilize the Bank, second to prepare the building blocks for growth and third to go for growth. We are now within the third phase of the transformation project”, Wema’s management had said

A shareholder of the Bank, Mr. Boniface Okezie told BH that despite the lenders inability to pay dividend over time, Wema Bank was now recovering its bearing.

Similarly, Chief Executive Officer of Crane Securities limited, Mr. Mike Ezeh, reckons that Wema Bank’s performance is an improvement on its results in the last few years.

A Lagos based analyst, Mr David Adonri of HighCap Securities limited said the bank’s improved profitability shows an institution that is gradually over coming its challenges.

”But the challenges operating environment is not too good for the bank which operating cost is high”, said Adonri.

However, a staff of the bank who would not want his name on print confided to BH that the bank was focused on ensuring that it keeps improving on its key performance indicators in the future.

Wema Bank’s dilemma

But Wema Bank does have a dilemma given that the dynamics of banking in Nigeria continue to change and with the implication that the competition has become stiffer. Wema Bank is a national bank that does not have branches in every part of the country. The South east of Nigeria does not seem to know Wema Bank, a except recent presence in Aba, implying that its regional disposition has not fully been addressed. Wema was the major brand in the West, and in fact, dominated the market in the region at a time when it seemed like all government parastatals of the Western region banked with it. But that has changed as G T Bank, Skye Bank, Sterling Bank, FCMB Group and First Bank have taken a huge chunk of the western market share.

Wema Bank, in fact is now embarrassingly owning just a little above 1 percent market share in the banking industry.

With over 154 branches only in a few states, customers may go for national banks with more products and wider reach.

That Wema Bank at about 74 years old still exists in country with high mortality rate for financial institutions is a huge plus to its management. Keen observers will ask where its peers, African Continental Bank and National Bank are today?

The lingering residue of the prolonged internal crisis in the bank which is however now believed to have been overcome, may still be affecting both shareholders and customers’ confidence in the institution’s ability to navigate to a greater bank.

Wema, many industry analysts are saying, must add vigour to its marketing strategies as well as try to reinvent itself to be able to compete with the likes of Zenith, GTBank, UBA and Access Bank.

Head brands and marketing of the bank, Fumilayo Falola told Business Hallmark that Wema Bank was putting its strategies right to achieve significant growth in the short to long term.

She explained the bank was also determined to reduce cost which partly may have been caused by the payment of dividend that came after 14 years, adding that recent right sizing was normal as firms review their stance, operations and systems from time to time in order to achieve their objectives.

Prospects

One advantage which the bank enjoys, industry observers note, is that a greater proportion of its infrastructure is in the target South-South and South-West market. BH findings reveal that the regions account for 98.8 percent of its total loan portfolio and 97 percent of deposit as at recent data.

Broad Street analysts have applauded its new management for stabilizing an institution which was almost dead. But it has a big task on its hands. How the bank can compete in the same market with the industry leaders such as First Bank, Zenith Bank, GTBank and UBA is still a puzzle. But then, this game called life is yet about puzzles and their resolution, isn’t it?

History of Its Crisis

Wema bank has had a chequered history which has been laced with bitter boardroom politics, and occassional management crisis among others. This almost snuffed life of the only surviving indigenous first -generation bank in Nigeria.

It would be recalled that the periods 2006, 2007 and 2008 were the most challenging time in the life of the bank. The bank was modestly competitive before bitter politics dominated its boardroom and drew the attention of the regulator. A group of investigators from the CBN and NDIC discovered gross mismanagement in the bank.

Many recall that after the banking consolidation the Central Bank of Nigeria (CBN)n had  directed governments – both Federal and State – to scale down their stake in banks to 10 per cent. It was at this point that the then leadership of the bank, that was led by Adebisi Omoyeni swung into action to find investors to take up the 40% then owned by the Oodua States because they had also assisted in recapitalizing the bank. But the selling of the shares became controversial. Omoyeni was suspended and recalled after winning a court case against CBN and then sacked again.

Recently, Wema Bank Plc disengaged not less than 1000 staffers. Many industry analysts have said it is normal for business entities to review systems and operations from time to time to be able to lurch ahead. However, professional the lay off may look, the action has dampened morale of those who still have their employment

Still on the bright side, Wema Bank has cuddled history by being the only surviving indigenous financial institution in Nigeria. That may not show up on its balance sheet but, according to less pessimistic observers, it gives hope in the bank’s subsisting potential to continue to blossom and thrive.